Types Of Contract Clauses

A contract is defined by an agreement between private parties that creates mutual obligations that are enforced by law. Contracts legally define the relationship between the parties, such as roles, responsibilities, compensation, and other components of the relationship. A contract is composed of specific clauses that clarify these relationships. The different types of contract clauses typically fall under three categories: enforcement clauses, interpretation clauses, and execution clauses. If you have questions or concerns about contract clauses, speaking with an experienced business attorney for legal guidance can ensure you understand all of your legal options. Consider reaching out to the dedicated attorneys at Sunridge Legal for a consultation at [email protected]

Enforcement Clauses

Enforcement clauses refer to clauses that indicate what the consequences are when one of the parties in the contract does not follow the obligations or promises laid out within the contract. Some of the types of contract clauses that fall under enforcement clauses can include:

  • A Choice of Law Clause
  • A Mediation Clause
  • A Statute of Limitations Clause

A Choice of Law Clause

A choice of law clause indicates which federal or state law governs the contract if one of the parties breaches the contract. If different parties live in different nations or states, there may be some confusion over which laws govern breach of contract. This clause clarifies what laws would be used to address a dispute.

A Mediation Clause

A mediation or arbitration clause requires that the parties in the contract attempt to resolve disputes by arbitration or mediation, before filing a lawsuit. The clause sometimes requires the parties to settle the dispute by arbitration.

A Statute of Limitations Clause  

This refers to the time in which the parties in the contract must file a lawsuit if the contract is breached. It is important to note here that states each have their own statute of limitations and, while some states allow a contract to be shorter than their own statute, others do not and will refuse to enforce contracts that have a shorter statute of limitation.

Execution Clauses

Execution clauses refer to clauses that cover how the parties are expected to perform their parts of the contract. Some of the types of contract clauses that fall under execution clauses can include. 

  • A Time of Performance Clause
  • A Non-Waiver Clause
  • A Force Majeure Clause

A Time of Performance Clause

This clause refers to the time frame for the parties to perform their contractual duties. In some cases, this might be a specific time frame, such as three weeks. Some clauses may use the term “time is of the essence” which means that if a party does not meet their duties within a specific deadline, they forfeit their rights within the contract. 

A Non-Waiver Clause

When a party does not meet their duties on one occasion – whether intentionally or not – and the other party does not enforce the contract, this clause ensures that this instance does not act as a waiver, preventing the other party from enforcing their rights at a later date. For example, if one party misses a monthly payment, the other party still has the right to insist on monthly payments moving forward.

A Force Majeure Clause

Force Majeure is a French phrase that means “superior force”. Simply put, a Force Majeure clause stipulates that in the event of a circumstance beyond their control – such as a natural disaster or a war – a party is not required to meet their contractual duties.

Understanding the different types of contract clauses may seem confusing at times. If you are a business owner that is in the process of negotiating the terms of a contract, consider visiting with a dedicated business lawyer at Sunridge Legal to protect your legal rights. 

Interpretation Clauses

Contract claims comprise 18 percent of civil cases that are tried in the courts throughout the United States. One of the types of contract clauses that mitigates the likelihood of parties having to go to court is interpretation clauses. Interpretation clauses clarify ambiguous or contradictory language within a contract. Some of the types of contract clauses that fall under interpretation clauses can include:

  • A merger clause or final agreement clause
  • A severability clause

A Merger Clause

A merger clause states that the contract terms are final and override terms within later agreements, avoiding ambiguity should there be contradictory terms in later versions of the contract. Some of the ways in which parties specifically avoid ambiguity in merger clauses are through the following terms:

  • A course of dealing: This states that if the contract is ambiguous, the court can refer to prior dealings between the two parties before the contract to resolve the ambiguities.
  • A course of performance: The court will consider the parties’ behaviors after the contract was executed as a way to resolve ambiguities.
  • A trade usage: In this scenario, the court will refer to how businesses in the same trade or commerce address ambiguous terms.

A Severability Clause 

A severability clause is also known as a savings clause. This clause stipulates that if it turns out that one or two aspects of the contract are not enforceable, the rest of the contract remains valid. The unenforceable aspects of the contract will be removed. The severability clause protects the contract from being declared invalid in court if only one provision is determined to be invalid. 

Contact an Experienced Attorney to Protect Your Legal Rights

Navigating contracts and contract clauses can quickly become confusing and overwhelming. It is important to consider visiting with an experienced lawyer to ensure that the contracts you enter into protect you both legally and financially. At Sunridge Legal, our experienced attorneys work closely with clients to ensure their rights remain protected as a business owner. Consider reaching out to us for a consultation by emailing us at [email protected].

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